The in-game help menu (which can be activated by pressing the left side of the PS4 touchpad) states the Form stat 'indicates a player's ability to maintain form over time.

In short, the Form stat helps determine a player's form arrow in Master League, Become A Legend and other game modes where you play consecutive matches with the same team/player. As for one-off matches, like in Exhibition mode, clearly a player who has a high Form stat is more likely to be given a yellow/red arrow.